India's manufacturing growth to continue in Q4, says Ficci survey

The responses have been drawn from over 400 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 10 trillion

Growth in the Indian manufacturing sector is expected to continue in the last quarter (January-March) of 2022-23 amid signs that cost pressure in the past many months seems to be softening a bit for the sector, a Ficci survey has said.

The responses have been drawn from over 400 manufacturing units from both large and SME (Small and Medium Enterprises) segments with a combined annual turnover of over Rs 10 trillion. It added that the cost of production as a percentage of sales for manufacturers in the survey has risen for 73 per cent respondents, which is lower than 94 per cent as reported in previous survey.

“Nonetheless, high raw material prices especially that of steel, increased transportation, logistics and freight cost, and rise in the prices of crude oil and fuel have been the main contributors to increasing cost of production,” it added.

It mentioned that all the respondents expressed that there is sufficient availability of funds from banks and industry does not expect the borrowing rates to go up any further from the current prevailing rates.

“Increase in repo rates in the last few months has led to a consequential increase in the lending rate by banks, thereby increasing the cost of borrowing for manufacturers,” it added. In February, the RBI’s Monetary Policy Committee (MPC) has raised the repo rate by 25 basis points to 6.50 per cent in order to bring inflation back towards the central bank’s 4 per cent target. The MPC has raised the repo rate by a total of 250 basis points since May 2022. 

The survey also looked at the dimensions that are important for manufacturing sector such as capacity addition and utilisation, exports, hiring, interest rate, sectoral growth, and workforce availability.

On the sectoral growth based on expectations, it said Auto, Capital Goods, Cement, Electronics & Petrochemicals & Fertilisers sectors are poised to see a strong growth while Chemicals & Pharmaceuticals, Textiles, Apparels & Textile Machinery rest are expected to register moderate growth. 

“The outlook for exports seems to be waning as only about 30 per cent of the respondents expect their exports to be higher in the ongoing quarter as compared to the same period in the previous financial year,” it added.

The report mentioned that the existing average capacity utilisation in manufacturing is around 75 per cent which is more than 70 per cent reported in the previous survey reflecting a sustained economic activity in the sector.

According to the survey, the future investment outlook has also improved as compared to previous quarter as over 47 per cent respondents reported plans for investments and expansions in the coming six months amid continued volatilities in supply chain and demand caused by the Russia-Ukraine war and increasing cases of various mutations of COVID virus in other countries.

“Increased cost of finance, cumbersome regulations and clearances, high logistics cost due to high fuel prices, low global demand, high volume of cheap imports into India, shortage of skilled labor, highly volatile prices of certain metals etc. and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents,” it added.

FICCI’s latest quarterly survey assessed the sentiments of manufacturers for Q-4 Jan-March (2022-23) for eleven major sectors namely Automotive & Auto Components, Capital Goods, Cement, Chemicals and Pharmaceuticals, Electronics, Machine Tools, Metal & Metal Products, Paper Products, Petrochemicals & Fertilisers, Textiles, Apparels & Technical Textiles, Textile Machinery and Miscellaneous.